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Federal Indictment Draws Scrutiny to Cyber Charters in Pa.

Federal investigators recently unveiled a grand jury indictment of Nicholas Trombetta, the founder and former CEO of Pennsylvania's largest cyber charter school, now alleged to have stolen nearly $1 million in public money and improperly diverted a total of $8 million to avoid federal income taxes.

The Cliff Notes version of the indictment is that prosecutors allege Trombetta created a byzantine network of companies and nonprofits, then used those entities to bilk PA Cyber Charter School—and taxpayers—by billing the school for work that was never done, using school employees to do work for the other companies, and redirecting funds to himself and family members. Prosecutors also allege that Trombetta took more than $500,000 in kickbacks related to laptop purchases for students and filed false tax returns in each year between 2007 and 2011. All told, Trombetta is facing 11 fraud and tax charges. His accountant, Neal Prence, was also charged.

On Friday, I talked with WHYY's Jennifer Lynn about the case on NewsWorks Tonight (listen above.) The Associated Press has the summary, and the Pittsburgh Post-Gazette, which has been on top of the troubles at PA Cyber for well over a year, has all the details, including a helpful graphic describing the money flow that we've included here.

But what does Friday's indictment mean for Pennsylvania's troubled cyber charter sector, which, at 16 schools and 35,000 students, is the largest in the nation—and was already under fire for corruption allegations, system-wide poor academic performance, and growing complaints about what many see as an overly generous funding mechanism?

The U.S. Attorney carefully sidestepped that question, according to the Post-Gazette, but with state lawmakers gearing up for another attempt at cyber reform, key stakeholders in the Keystone State are definitely paying attention.

The indictment "is certainly something that's going to affect the discussion relative to cyber schools and funding in the next legislative session," said Robert Fayfich, the executive director of the Pennsylvania Coalition of Public Charter Schools.

At minimum, said Fayfich, the allegations against Trombetta will increase the pressure on state lawmakers to finally seek to determine the actual cost of cyber education in Pennsylvania, and also to spur the state education department to take seriously the growing calls for it to strengthen its procedures for authorizing and monitoring cybers in the state.

Troubled Sector

In 2012-13, 498 of Pennsylvania's 500 traditional school districts sent students to a cyber charter. Under the state's funding mechanism, those districts are required to pass along to the cyber about 80 percent of the funds they would otherwise have received to educate that child—an amount that last year worked out to an average of at least $10,000 per child. All told, the state's 16 cybers were poised to receive more than $366 million in taxpayer funds last school year.

With more than 10,000 students a year, PA Cyber alone has been receiving well over $100 million in public money annually, a portion of which prosecutors allege that Trombetta was using to fund businesses that functioned as his "personal ATM machine" and "personal retirement account."

For years, many have complained that the state's funding formula is too generous to cybers. Former state auditor general Jack Wagner, for example, made cyber funding an almost annual issue, calling for a statewide reimbursement rate of more like $6,500 per student to cybers.

Critics have also been concerned about the quality of the state's cyber charters. None of the dozen Pennsylvania cybers receiving ratings in 2011-12 met their federally mandated academic performance targets.

And Trombetta isn't the first cyber charter honcho accused of massive fraud in Pennsylvania—just last July, Dorothy June Brown, the founder and former head of the Agora Cyber Charter, which enrolls more than 5,000 students, was charged by the feds with defrauding Agora and two other charters of more than $6.5 million between 2007 and 2011.

Friday's indictment is just another example in the long list of concerns about cyber charters held by Rhonda Brownstein, the executive director of the Pennsylvania Education Law Center.

"The claims [of wrongdoing by Trombetta] are another example that these schools have expanded with virtually no fiscal oversight," Brownstein said. "Until the state thoroughly addresses the numerous fiscal—and academic—issues with cyber charter schools, it should impose a cap on their growth and a moratoriuim on the approval of any new cyber charters."

A Good Option

But PA Cyber also demonstrates the value of online options for students.

Trombetta founded the school, based in Midland, Pa., after the town and its local school district faced a series of hardships. A small steel mill town in Beaver County about 35 miles north of Pittsburgh, Midland saw its population and tax base largely disappear after the steel industry collapsed and the local mill was shut down. In 1986, Midland closed its high school, then began a years-long search for someplace to send the community's secondary students. After most of the surrounding districts in Pennsylvania declined to take Midland's students in the mid-1990's, the district began sending its high school students across state lines, to East Liverpool High School, in Ohio.

"That still is our high school," Sean Tanner, the superintendent of the 328-student Midland district, told me last May, when I still worked at WHYY/NewsWorks in Philadelphia and was working on a big piece about cyber charter funding in the state.

Tanner said back in May that the creation of the online school had been good for the Midland community.

"The option in Ohio is a good option. They've been a good partner for us. But it's in Ohio," Tanner said. "We don't have this strong stance against [cyber charters] because it's been customary for the district to pay [tuition elsewhere] for high school kids."

Proponents say full-time online schools are an important and valuable outlet for students with chronic or severe illnesses, who frequently travel, who have experienced bullying and other problems in traditional schools, and who can't find some course offerings in their home schools.

Whatever the reasons, enrollment in PA Cyber has grown quickly, reaching 10,443 students in 2012-13.

True Costs of Cyber Charters?

Amid declining federal support and deep cuts in state aid to public education, though, many of Pennsylvania's traditional school districts have begun pushing back against the state's growing cyber sector, seeking funding reforms and more accountability. In each of the past three sessions of the Pennsylvania legislature, broader charter reform measures that have included changes aimed at cybers have been introduced and gained traction, but have ultimately failed to pass.

Fayfich of the PA Coalition for Public Charter Schools said cyber funding will almost certainly be an issue again this fall—and that this time, cyber detractors will have additional ammunition for their efforts to reduce the reimbursement levels for the schools. "Those who are opposed to cybers are going to say, 'See, we told you so, cybers are getting paid too much, we need to cut their funding,'" Fayfich said.

The coalition, he said, has a different stance:

"We have always supported investigating what the true costs are of providing a high-quality education through cyber schools, but what we have opposed is the false assumption that kids [in cyber charters] are just given computers and that's it and therefore the costs are lower. That may or may not be true. The analysis hasn't been done."

As for the accountability and oversight concerns, said Fayfich, many necessary changes shouldn't require legislation. In Pennsylvania, the state department of education is solely responsible for authorizing new cyber charter schools, providing oversight, and renewing existing cybers.

"I think there needs to be a close look at making sure [the state department] is a high-quality authorizer. If they're not, we won't have high-quality [cyber] schools," he said.

Fayfich said the department has made it a "very high priority to increase the quality of the authorization done for cyber schools." He pointed to the recent decision not to approve any of the eight proposals for new cyber charters hoping to open in the state next year.

Brownstein of the Education Law Center agreed.

"It was encouraging earlier this year to see [the department] take a more thorough and thoughtful approach to cyber charters by not simply rubber-stamping the latest round of cyber charter applications," said Brownstein.

"We'd encourage the department's new leadership to continue that approach and begin a more rigorous examination of fiscal and academic issues with the existing cyber charter schools," she added.

Timothy Eller, a spokesman for the department, did not immediately return a request for comment on the Trombetta indictment. Two weeks ago, he explained the department's stance on the pending cyber charter applications, "The applications that were submitted were deficient and lacked evidence that students would be offered quality educational programs."

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